Edited version of your written advice

Authorisation Number: 1051262176919

Date of advice: 22 August 2017

Ruling

Subject: Ordinary Times Earnings

Question

Is a payment of salary in lieu of a consideration period considered ordinary time earnings (OTE) for the purposes of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Advice

Yes. Refer to 'Reasons for decision’

This ruling applies for the following period

1 July 2016 – 30 June 2018

Relevant facts and circumstances

1. Under the Enterprise Agreement an employee considered excess may be given an offer of voluntary termination of employment.

2. The employee is given a 2 month period (consideration period) to accept the offer.

3. Where the employee accepts the voluntary termination of employment offer they can choose to shorten the consideration period. The employee will be paid in lieu for the unexpired portion of the consideration period at the date of termination of the employee's employment (Consideration Period Payment).

4. On acceptance of the voluntary termination of employment offer, the employer must issue a notice of termination at the time set out in the offer. The notice provides for a notice period of either 4 or 5 weeks in which the employee can continue to work.

5. The employer can choose to terminate the employment before the notice period expires and must then make a payment in lieu of notice based on the salary the employee would have received during the remaining notice period (Notice Period Payment). Where the employee has chosen to shorten the consideration period then they will be also be paid the period in lieu of notice.

6. It is possible that the Consideration Period Payment and Notice Period Payment can overlap for the same period, however there will still be two separate payments made based on the same amount of salary the employee would have earned over that period.

Reasons for decision

Summary

7. Consideration Period Payments, payable by you to an employee under the Enterprise Agreement, are considered ordinary time earnings as per subsection 6(1) of the SGAA.

Detailed reasoning

8. An employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'.

9. OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA and includes the total of the employee’s earnings in respect of ordinary hours of work and earnings consisting of over award payments, shift loading or commission. However it does not include lump sum payments made on termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave.

10. OTE is described in SGR 2009/2 as the payment for the 'ordinary hours of work’. The term 'ordinary hours of work’ is defined as:

● the hours specified as the employee’s ordinary hours under an award or agreement; or

● if the ordinary hours are not specified, the hours regularly worked by the employee; or

● if the ordinary hours are not specified and the regular hours are impossible or impractical to determine, the actual hours worked.

11. All amounts of earnings in respect of employment are in respect of the employee’s ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work. The Commissioner does not consider that the services or attendance of an employee specifically during certain hours of work is necessary for the earnings to be 'in respect of ordinary hours’ and therefore OTE.

Payments in lieu of notice and OTE

12. The employee has a two month consideration period to accept an offer of voluntary termination of employment. The offer must state when the employer proposes to issue the termination notice if the offer is accepted. If an employee chooses to continue working during the consideration period they will receive salary for that period and that amount is OTE for superannuation purposes. The fact that the consideration period can be shortened (where the offer is accepted) will not exempt the employer from paying the employee the unexpired portion of the consideration period.

13. Paragraph 38 of SGR 2009/2 outlines the ATO view on payments in lieu of notice with respect to an employee’s OTE:

38. An employee may be entitled to a period of notice before the employer's termination of his or her employment takes effect. Awards and agreements often provide that, instead of giving this notice, the employer may simply pay an amount equivalent to the ordinary time rate of salary or wages that the employee would have earned during the notice period. Such payments are OTE.

14. The Consideration Period Payment is akin to a payment in lieu of notice which is treated as OTE. These amounts are based on salary that the former employee would have been paid had they remained employed during the consideration period. The employer would be obliged to pay the superannuation contribution, as the payment of salary in lieu of the consideration period is considered OTE.

15. Subsequently, it is the Commissioner’s view that the Consideration Period Payment satisfies the definition of OTE as set out in subsection 6(1) of the SGAA.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 6(1)

We followed these ATO view documents

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings’ and 'salary or wages’,

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